Question

Amberjack Company is trying to decide on an allocation base to use to assign manufacturing overhead to jobs. The company has always used direct labor hours to assign manufacturing overhead to products, but it is trying to decide whether it should use a different allocation base such as direct labor dollars or machine hours. Actual and estimated data for manufacturing overhead, direct labor cost, direct labor hours, and machine hours for the most recent fiscal year are summarized here: Manufacturing overhead cost Direct labor cost Direct labor hours Machine hours Estimated Value $ 597,000 $ 399,000 16,800 hours 7,800 hours Actual Value $ 658,000 $ 453,000 18,300 hours 8,800 hours Required: 1. Based on the company's current allocation base (direct labor hours), compute the following: a. Predetermined overhead rate. (Round your answer to 2 decimal places.) b. Applied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) c. Over- or underapplied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) 2. If the company had used direct labor dollars (instead of direct labor hours) as its allocation base, compute the following: a. Predetermined overhead rate. (Round your answer to 2 decimal places, i.e. 3.63%) b. Applied manufacturing overhead. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) c. Over- or underapplied manufacturing overhead (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) 3. If the company had used machine hours (instead of direct labor hours) as its allocation base, compute the following:

Answer 1

Overhead Calculations For Amberjack Company: 1a) Overhead rate = Estimated overhead/Estimated labor hours = 597,000/16,800 = $35.54 per labor hour 1b) Applied overhead = 18300*35.54 = $650382 1c) Over or under applied manufacturing overhead = 658,000-650382= 7618 Under applied 2a) Overhead rate = 597,000/399,000 = 149.62% of Direct Labour Cost 2b) Applied overhead = 453,000*149.62% = $677,779 20) Over or under applied overhead = 658,000-677,779= $19779 Over applied 3a) Overhead rate = 598,000/7,800 = $76.54 per machine hour 3b) Applied overhead = 8,800*76.54 = $673,552 3c) Over or under applied overhead = 673,552-658,000 = $15552 Over applied 4) Direct Labour hours is most accurate for applying Overhead * Kindly Comment down for any clarifications/ queries and please upvote.